Tesla Nears to Sealing a Deal to Open its First Factory in China

Tesla Motors Inc., a U.S electric vehicle factory, is near to sealing a deal to produce electric vehicles in China for the first time, allowing the electric car maker to have a better access to the world’s largest auto market.

The deal would permit Palo Alto, California-based Tesla to establish its facility in the Lingang Development Zone of Shanghai, the country’s automotive industry center and home to numerous auto-parts suppliers and a convenient transportation hub, according to the report.

So far, details are being finalized and the time of announcement could still be changed. Tesla would need to set up a joint venture with at least one local partner under prevailing rules and it is still unclear who would that be.

However, there have been numerous prior rumors regarding Tesla’s China factory plans. In April, it was reported that Tesla might build up a production base in Guangdong province. Shanghai Jinqiao, Suzhou in Jiangsu province, and Hefei in Anhui province have all been rumored as possible factory sites.

Producing cars domestically will help Tesla expand in the world’s largest automobile market, as buyers of Tesla would enjoy the similar government subsidies and tax breaks offered to buyers of other Chinese-made new-energy cars. Moreover, it will allow the company to avoid a 25% tax that renders Model S sedans  and Model X sport utility vehicles more expensive than in the U.S.

China has recognized new-energy vehicles as a strategic developing industry and intends to boost annual sales of plug-in hybrids and fully electric cars 10-fold in the next decade. The government’s support guided China to exceed the U.S. in 2015 to become the world’s biggest market for the non-emission autos.

Shares of Tesla increased about 2% in after-hours U.S. trading. The stock has grown 73% this year. Shanghai Lingang  Holdings Co. increased as much as 8.7% to a seven-month intraday high.

Tesla’s Chinese revenue tripled to over $1 billion last year, but improved vehicles carry stiff tax, thus limiting the market for the highly subsidized electric vehicles. Cars produced in China itself would carry the customary 25% import tax.

In March, the China’s biggest internet company, Tencent Holdings, purchased a 5% stake in Tesla for $1.8 billion. Teaming up with  the owner of the WeChat and QQ messaging services could help the automaker to have traction in a market where more than 200 companies have announced plans to build new-energy vehicles.

Next month, Tesla is scheduled to start rolling out the Model 3, a more affordable and smaller electric sedan. Tesla has yet to launch the Model 3 in China. In the U.S., consumers stood in long lines to place $1,000 deposits for the vehicle.

Tesla, which made roughly 80,000 cars in 2016, aims to increase it by about 7-fold to 500,000 annually by 2018. The automaker also plans to finalize locations of up to three battery Gigafactories this year.

By 8:00 PM GMT-4, Tesla Inc. traded 0.43, or 1.60, to $369.80 and opened in $375 with a session high of $376.70 and a session low of $367.80. Its market capitalization was 60.11 billion.

Want to get updated on the latest news about the stock market? Subscribe now at Trade12. We will let you know the latest happenings about forex, commodities and economies.